Top events of December 2010

The National Energy Security Fund introduces top-ten events in the oil and gas industry in December 2010 and is ready to comment on them in detail.

1. Agreements with Belarus on common economic area, presidential elections

   The sides agreed that the customs duties will be charged on oil products crossing the Belarusian-European border and part of the duties collected will be transferred to the Russian budget. However, the situation concerning Belarus is not so unambiguous. Some say Russia will lose about $3bn to $4bn, which is not correct. These figures are based on the supposition that Belarus paid oil duties. It is known that in Russia duties on oil products are substantially lower than duties on crude. Application of Russian norms in the common customs area results in the assumption that Belarus will pay $4bn less. But on the other side, Minsk has never paid duties; but now it is going to pay at least something. However, on the whole there is a feeling that Lukashenko has again beaten Russia. He immediately started requesting a discount on gas, although a clear-cut pricing formula was set back in 2006. This again shows that Russia has no strategy of building relations with Belarus either being angry with Lukashenko or reconciled with him. In general, the situation unfortunately changes insignificantly.

2. Bashneft receives Trebs and Titov licenses

   On one side, there is nothing extraordinary in this case because only one bidder for these deposits was left. On the other side, this was the only such a significant transfer of licenses in 2010. From the point of view of selling licenses at tenders the year 2010 was not successful. The state was putting for sale illiquid deposits that nobody wanted to buy. In this regard, the Trebs and Titov deposits that had been prepared for sale for five years were an exception and could not be transferred to some random bidder. Bashneft is a private company belonging to AFK Sistema whose assets will soon be transferred to other even more loyal businessmen. To some extent, AFK Sistema plays a role of a box for temporary storage of assets.

3. Gazprombank sells Sibur to Leonid Mikhelson

   It is clear that Mr. Mikhelson plays a similar role of Sistema in the Bashneft case – a temporary owner of assets. Gazprombank was also a temporary owner. The asset is being gradually handed over to loyal people; moreover this is not Mr. Mikhelson who personally owns it but several offshore firms. It is not clear what will be the fate of these offshore companies. By the way, the petrochemical holding Sibur was once privatized: some time ago it was withdrawn from Gazprom, then it was returned to Gazprom and then again through some schemes involving Gazprombank the company was transferred to offshore companies. That’s “nationalization”.

4. Russia’s Security Council discusses national energy security

   It is nice that the state remembered about these problems. Everybody speaks about energy security, e.g. Europe, China and others, but not Russia where we give ourselves airs claiming the energy superpower status, while in reality there is even no understanding what is national energy security for Russia. On the other side, there are big doubts that the meeting will result in some reasonable document and that this concept will not be the typical runaround we are used to but a really serious thoroughly drafted document.

5. President Medvedev visits India

   Potentially India is a very big market for our energy sources. Just like in China the demand for oil and gas is booming in this country. Last year its gas consumption jumped 25% making India a leader in this regard. The domestic production cannot cope with the demand this is why India, like China, looks for imports hydrocarbons; moreover, in both countries the share of coal in the energy balance is large. But China fundamentally differs from India: Russia borders on China and does not border on India. This is why logistics is the main hindrance for possible joint projects with India. The only serious project the state leaders discussed in Delhi was development of nuclear energy cooperation. But it is impossible to seriously talk about merger of oil assets of India’s ONGS and Russia’s AFK Sistema. Yet, ONGS is so much eager to work in Russia that it is ready to merge with anybody: even TNK-BP declared it might swap assets with ONGS, although it is absolutely not clear how the firm will do it.

6. Expansion of resource base of Yamal projects

   The unprecedented process of stuffing private firm NOVATEK with assets continued: at first it was granted taxation preferences, then the state promised investments in infrastructure and now the producer is promised more licenses, although the situation is not simple. Two of the promised deposits are on the shelf, while NOVATEK does not have the right for offshore deposit licenses.

7. Gazprom Neft obtains access to offshore projects

   The history of Gazprom Neft testifies to the fact that certain tricks with our laws are possible. The company adroitly used the status of its subsidiary and in fact secured its access to offshore deposits, which it had long been craving for.

8. Second case of Khodorkovsky

   The main thing was said. The verdict is ‘guilty”. It is clear that state authorities consciously postponed the verdict delivery to the period when Europe and the USA have Christmas holidays. Although the Khodorkovsky trial is a top story on some TV channels, in general the attention of the West is mainly focused on Christmas turkey rather than the verdict. It would be strange to see Khodorkovsky released two months before the parliamentary elections. Despite the public brainwashing and hysterics, the logic of struggle for property in Russia and political logic demonstrate that another result of this case would have been impossible.

9. Decision to expand CPC oil transportation capacity

   When we speak about oil exports to the West to a great extent we honestly acknowledge that Russia is going to gradually turn from an exporter into a transit state. For instance, we are going to enlarge the capacity of the pipeline designed to supply Kazakh oil to Europe. Thus, we broaden the channel of supplies of foreign oil to European markets. It seems we believe that our oil should satisfy China that is increasing its oil imports from Russia. As a result, we are leaving our market and Europe. Broadening the capacity of the Caspian Pipeline Consortium oil pipeline is a bright example of our silly export policies.

10. Searches in banks within Transneft case

    Transneft long ago started attracting scandals. The latest case shows that new executives of the company concerned about developments try to switch responsibility onto their predecessors. This is why there are intensive speculations about Semyon Vainshtok having stolen everything. Nikolay Tokarev should not be envied either, because he has found himself between two powerful political clans: one promotes the Chinese direction, the other stands for the European one – ESPO vs. BPS-2. Since BPS-2 will be completed next year, the situation around Mr. Tokarev will be much more dramatic. Thus, the latest scandal concerning Transneft is not the last one.